Creation and Destruction: Evidence from an Emerging Market

We use a panel database constructed from Chilean IRS data to study firm creation and destruction. As expected, larger and more productive firms are less likely to be destroyed; and (also as expected) they are less likely to be created than smaller and less productive firms. They are more likely to reflect the shocks of the economy on sales performance, or in the execution of individual entrepreneurial projects within the firm. For smaller and less productive firms shocks and changes are reflected in survival, destruction or creation. We have shown that ”financial dependence” has different meaning for smaller firms, as reflected in a significant difference in sign of the corresponding parameter. For them it is an indicator of ”financial constraint” and acts in our regressions as a predictor of firm destruction, of bad sales performance and a also as a stronger predictor of firm creation than for larger firms.